Cash-strapped Niko Resources may have to exit KG-D6 block
Canada-based Niko Resources may have to exit its holding in the D6 block in the Krishna-Godavari basin as the cash-strapped company is struggling to meet its investment obligations, according to the firm.
Niko has a 10% stake in the block, off the country’s east coast. Mukesh Ambani-controlled Reliance Industries Ltd (RIL) holds 60% and BP Plc owns a 30% stake. Niko’s cash flow has been impacted by the failure of its oil and gas operations in Bangladesh, Indonesia and Trinidad. In November 2016, the company decided to sell its 10% stake in the D6 block but has not been able to find suitors. The company has said due to the foregoing matters, there is material uncertainty that may cast significant doubt about its ability to continue as a going concern.
“While these efforts are continuing, to conserve its remaining cash (approximately $3.6 million as of September 30, 2018), the company elected not to pay a D6 Block cash call that was due in early October 2018,” Niko said in a statement posted on its website on November 13.
Owing to the cash crunch, Niko surrendered in 2015 its 10% stake in another block, NEC-25, off the Odisha coast, to RIL (60%) and BP (30%).
In 2016, the company sold its 33.3% stake in the Hazira field in Gujarat to Sun Petrochemicals.
During its September quarter earnings, Niko said if the defaulting party does not cure a default within 60 days of the default notice, the partners have the option to ask it to withdraw from the D6 production sharing contract (PSC). While Niko has failed to secure any buyer for its 10% stake in the D6 block, it has also been unsuccessful in securing financing to fund its share of the R-Cluster, Satellite Cluster and MJ development projects in the block. Niko’s share of the funding requirement for development of these projects is estimated at approximately $200 million between mid-2018 and mid-2020.
Under the joint operating agreement (JOA) between the three companies in the D6 PSC, during the continuance of a default, the defaulting party shall not have a right to its share of revenue as it shall vest in and be the property of the non-defaulting parties who have paid to cover the amount in default.
“If the default under the D6 JOA is not cured on a timely basis and the non-defaulting parties request that Niko withdraw from the D6 PSC and JOA, then this will have a material adverse impact on the company’s stakeholders,” Niko added.